Hindalco Industries Ltd (Q4 FY13)

India Infoline News Service | Mumbai |

Hindalco’s operational performance was inline with our estimate. Operating profit of Rs6.4bn was inline with our estimate.

CMP Rs109, Target Rs122, Upside12.3%

  • Standalone revenue declined by 8.5% yoy to Rs70bn due to lower copper production, but was inline with our estimate
  • The recovery in alumina and aluminium volumes continued for the second quarter on the back of higher availability of bauxite
  • Copper production remained flat qoq, but was lower by 10.9% yoy
  • Operating profit of Rs6.4bn was marginally higher than our estimate due to a decrease in employee costs
  • Gross debt increased by 37% yoy due to higher capex at both Hindalco and Novelis and an increase in working capital at Novelis
  • Commercialisation of the Mahan smelter and Utkal refinery is expected in Q2 FY14
  • Maintain Buy with a revised 9-month price target of Rs122.
Result table (Standalone)
(Rs mn) Q4 FY13 Q4 FY12 % yoy Q3 FY13 % qoq
Net sales 69,938 76,471 (8.5) 68,717 1.8
Material costs (47,143) (53,161) (11.3) (46,570) 1.2
Power and fuel costs (7,544) (7,440) 1.4 (7,549) (0.1)
Personnel costs (2,895) (2,678) 8.1 (3,082) (6.1)
Other overheads (5,924) (4,544) 30.4 (5,695) 4.0
Operating profit 6,432 8,648 (25.6) 5,821 10.5
OPM (%) 9.2 11.3 (211) bps 8.5 73 bps
Depreciation (1,726) (1,658) 4.1 (1,884) (8.4)
Interest (1,577) (801) 96.9 (1,690) (6.7)
Other income 2,312 1,605 44.1 3,181 (27.3)
PBT 5,442 7,794 (30.2) 5,428 0.2
Tax (621) (1,395) (55.5) (1,093) (43.2)
Effective tax rate (%) 11.4 17.9   20.1  
Adjusted PAT 4,820 6,400 (24.7) 4,335 11.2
Adj. PAT margin (%) 6.9 8.4 (148) bps 6.3 58 bps
Reported PAT 4,820 6,400 (24.7) 4,335 11.2
Ann. EPS (Rs) 20.1 26.7   (24.7) 18.1   11.1
Source: Company, India Infoline Research

Revenue declined 8.5% yoy due to lower metal prices

Standalone revenue decreased 8.5% yoy to Rs70bn, marginally lower than our estimate of Rs70.6bn. The decline in topline was largely due lower contribution from the copper division. Revenue from the copper division declined 10.6% yoy to Rs46bn on account of lower copper realisations. Copper production stood at 84,600 tons, 10.9% lower on a qoq basis. Aluminium production too was lower by 1.4% qoq and higher on a yoy basis at 142,000 tons. Revenue from the aluminium business was lower by 4.1% yoy largely due to lower realisations. Aluminium premiums increased on a qoq basis, leading to an increase in blended realisations. The company managed to tap its first metal in April and commercialisation is expected to be done in Q2 FY14. It has also started the trial runs at its Utkal refinery and expects commercial production to start in Q2 FY14. The Aditya smelter is progressing well and the company expects it to be operational in 2013.


Operating profit declined due to lower aluminium business EBIT

Hindalco’s operational performance was inline with our estimate. Operating profit of Rs6.4bn was inline with our estimate. However, on a yoy basis it was lower by 25.6% yoy due to a decline in profitability of its aluminium business. Due to a decline in aluminium realizations, aluminium business EBIT declined by 41.4% yoy to Rs2.8bn. The impact of lower LME on realizations was some what offset by a rise in spot premiums during the quarter. Copper business EBIT was marginally lower due to lower volumes. However, EBIT margins were flat yoy and higher on a qoq basis. We were positively surprised by the increase in copper business EBIT margins as we were expecting margins to shrink due to lower by-product prices. The impact of lower raw material costs on margins was offset by a jump in other expenditure. Other expenditure increased from 5.9% in Q4 FY12 to 8.5% in Q4 FY13.


Cost Analysis
As a % of net sales Q4 FY13 Q4 FY12 bps yoy Q3 FY12 bps qoq
Material costs 67.4 69.5 (211) 67.8 (36)
Power and fuel costs 10.8 9.7 106 11.0 (20)
Personnel Costs 4.1 3.5 64 4.5 (35)
Other overheads 8.5 5.9 253 8.3 18
Total costs 90.8 88.7 211 91.5 (73)
Source: Company, India Infoline Research

Lower tax outflow led to an outperformance in bottomline

Hindalco reported 11.2% qoq gain in PAT to Rs4.8bn, higher than our estimate of Rs3.9bn. The outperformance in bottoline was largely due to higher other income and lower tax rate. Other income during the quarter was 44.1% higher on a yoy basis at Rs2.3bn. The tax rate stood at 11.4%, quite lower than the average tax rate of 20%.


New projects to start commercial operations in Q2 FY14

The management in its press release has mentioned that the three Greenfield projects of Mahan Aluminium, Hirakud FRP and Utkal Aluminium have started trial production and expected to be available for commercial production in Q2 FY13. The company managed to tap its first metal in April and commercialisation is expected to be done in Q2 FY14. It has also started the trial runs at its Utkal refinery and expects commercial production to start in Q2 FY14. The Aditya smelter is progressing well and the company expects it to be operational in 2013. The company partially commissioned its rolling plant in Q1 FY14.


Aluminium volumes to boost earnings in FY15; Maintain Buy

Hindalco has underperformed the benchmark indices over the last one year due to soft aluminium prices globally, project delays and allocation of coal block to the Mahan smelter. We believe the downside for aluminium prices is limited as it is below the mean of the global cost curve. In addition to this, the decline in global aluminium prices is offset by the depreciation of the rupee against the dollar. The Ministry of Environment and Forest (MoEF) have granted forest clearance to the Mahan Coal block on certain conditions. The new projects would provide some volume boost to the company in H2 FY14E. We believe the recovery in Novelis would continue going ahead and would drive the earnings of the consolidated entity over the next one year. We maintain our Buy recommendation on the stock with a revised 9-month target price of Rs122.


Segmental results
Y/e 31 Mar (Rs m) Q4 FY13  Q4 FY12 yoy chng Q4 FY13  Q4 FY12
Sales (Rs m)     in % Sales Contribution (%)  
Aluminium Business 23,961
BSE 234.45 [2.70] ([1.14]%)
NSE 234.45 [3.50] ([1.47]%)

***Note: This is a NSE Chart

 

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